Assessable value of cotton fabrics includes deferred cotton yarn duty under the compounded levy procedure.

Duty on cotton yarn collected under the special compounded levy procedure for composite mills was part of the assessable value of cotton fabrics, because the procedure only deferred the stage and manner of collection and did not exempt the yarn from duty. For Section 4(4)(d)(ii) of the Central Excises and Salt Act, 1944, the phrase "such goods" referred to the fabrics being cleared, so the deferred yarn duty formed part of manufacturing cost and had to be included in valuation. The double taxation objection failed because yarn and fabrics were taxed under different tariff items at different rates, and the later exemption notification reinforced that, absent exemption, the yarn-duty element was includible.

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Issues: Whether duty on cotton yarn, collected under the special compounded levy procedure at the time of clearance of cotton fabrics, was includible in the assessable value of the cotton fabrics for levy of excise duty; and whether the demand resulted in double taxation or was affected by the subsequent exemption notification.

Analysis: The special procedure for composite mills did not grant exemption from duty on cotton yarn; it only shifted the stage and manner of collection of that duty to the time of clearance of fabrics. For the purposes of Section 4(4)(d)(ii) of the Central Excises and Salt Act, 1944, the expression "such goods" referred to the fabrics being cleared, and the deferred yarn duty formed part of the cost of manufacture and therefore had to enter the assessable value. The plea of double taxation failed because the yarn and the fabrics were taxed under different tariff items at different rates. The exemption notification issued later also supported the position that, absent exemption, the yarn-duty element was otherwise includible in the value of the fabrics.

Conclusion: The duty on cotton yarn was rightly included in the assessable value of the cotton fabrics, and the challenge to the demand failed.

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